REVENUE PRODUCTIVITY OF ZIMBABWE’S TAX SYSTEM

This study evaluates the revenue productivity of Zimbabwe’s overall tax system and of individual taxes on the basis of estimates of tax buoyancy using yearly time series data for the period 1975-2008. The tax buoyancy is computed using the Dummy Variable Technique to abstract from discretionary changes in the tax system. The estimation results demonstrate that the tax system as a whole and the individual taxes, with the exception of customs duty, are both not buoyant. Also most of the buoyancy coefficients are found to be greater than the elasticity coefficients implying that discretionary tax measures (DTM) were used to generate additional tax revenue during the study period. These results have important implications for tax reform. A buoyant and elastic tax structure is appropriate in a developing economy, since it implies that tax collections will grow automatically with the growing economy without resorting to frequent, potentially sensitive discretionary changes in tax structure. The study recommends improvements on tax administration, reduction in tax evasion and reducing the number of tax exemptions so as to improve on revenue generation.